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43 Cards in this Set
- Front
- Back
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What are price extensions and retracements?
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These tools help you to understand the likely strength or weakness of a market at any one time and to determine the distance that the market is likely to rise or fall in the future, based on a previous price movement.
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Why are price extensions and retracements important?
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It is important to project potential support and resistance levels into the future to predict the most likely price level where a market could turn, thereby providing an opportunity to fine tune our entry and exit points.
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What are Gann Price Ranges?
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Gann identified that over time markets develop cycles. All cycles are continuous. Price ranges (cycles) tend to repeat themselves. Consequently we can use price ranges to determine the probability of future price movements with a high degree of accuracy to identify where a market will find support or resistance by using Gann or Fibonanci price levels.
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What are the Gann Price Levels?
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Gann divided price ranges into full range (100%), halves (50%), quarters (25%), thirds (33%) and sixths (16.67%).
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What happens if a market moves more than the 100% level?
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Sometimes markets will travel many hundreds of a percent of a previous range. Therefore we need to calculate these levels (116.67%, 125%, 133%, 150% and 200%) to keep pace with the market.
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What are Fibonacci ratios in trading terms?
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The ratio of successive terms in the Fibonacci sequence (created by adding 2 numbers together to get the next) is referred to as the golden mean and is always 1.618. Fibonacci ratios are obtained by multiplying the previous ratio by the golden root ratio of 1.618 and multiplying by 100 to express it as a percentage.
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What are the most common ratios you will see?
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38.2%, 50%, 61.8%, 78.6% and 100%
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If a market does not stop at a Gann number....
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it will stop at a Fibonacci number. Therefore its best to use a combination of the most important Gann ratios together with the Fibonnaci numbers.
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What is a price range?
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A price range is the measurement of a preceding movement in price (from Point A to Point B) in any direction (up or down).
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How do we work out the range of a bar for short term price analysis?
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We subtract the low price of the bar (Point A) from the high price of the bar (Point B).
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How do we work out the price range of a series of price bars in a trend?
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Up trend (BUP): Point B (which is the highest point in the move) minus Point A (which is the lowest point in the move).
Downtrend: Point A (which is the highest point in the move) minus Point B (which is the lowest point in the move). |
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What is a price extension?
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A price extension is a price range that is projected in the SAME direction as the original price range and is used to calculate calculate future support and resistance levels.
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How does a price extension occur in a rising market?
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When we take the price range (Point B minus Point A) and multiply it by the percentage ratio (Gann or Fib.) to give us the price level. The price level is then added to a third point to determine the extension level - how far the stock may travel in the uptrend.
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What does a price extension tell us?
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How far the market could travel in the current move and where we will find the most likely resistance in price to the up move (i.e. the point the up move will cease).
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What is the formula for calculating a price extension in a rising market?
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Point B - Point A = Range
Range x % ratio = Price Level C + Price Level = Price Extension |
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How can we use the information that a price extension gives us?
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If we know the repeatable patterns within a stock, it can provide advance warning as to the likely extent of an uptrend so as to exit before any subsequent fall.
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In a falling market, how does the formula for calculating a price extension change?
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It is now Point A (highest) minus Point B (lowest) and we also subtract the price level from point C.
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What is the formula for calculating a price extension in a down trending market?
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Point A - Point B = Price Range
Price range x % ratio = Price Level C - Price Level = Price Extension |
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What must we remember when using price extensions & retracements to determine future support and resistance levels?
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All cycles continually move, when one is complete the next one starts. Thus the current trend or price movement may travel in distance one or more price cycles (levels?) of the previous range.
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Which way do stocks always retrace?
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In the direction that is counter to the overall trend.
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What does the retracement distance indicate?
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How far a stock retraces in regards to a previous move indicates the strength or weakness of the stock.
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What can we use price retracements for?
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To alert us as to how far a stock is likely to fall in an uptrend or rise in a downtrend and at what price we may get an entry signal into the stock.
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How do we calculate a price retracement in a rising market?
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First calculate the price range of the current movement - the highest point (Point B) minus the lowest point (Point A). Then multiply the range by the % ratio to calculate the price level. Finally subtract it from point B.
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What is the formula for calculating a price retracement in a rising market?
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Point B - Point A = Range
Range x % ratio = Price Level Point B - Price Level = Price Retracement Level. |
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What price levels would we normally calculate for a price retracement?
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38.2%, 50% and 61.8%
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What is the normal distance retraced by a stock in either a bear or bull market?
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Between 38.2% and 61.8%
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How does the formula change when calculating a price retracement in a falling market?
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It is now Point A (highest) minus Point B (lowest) to get the price range and then we ADD the price level to Point B.
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What is the formula for calculating a price retracement in a falling market?
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Point A - Point B = Price Range
Price range x % ratio = Price Level Point B + Price Level = Price Retracement Level. |
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List the Gann Price Levels in order of strength
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100%
50% 75% 25% |
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List the Fibonacci Price Levels in order of strength
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100%
50% 61.8% 38.2% |
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The greater the distance between Point A and Point B...
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the more dominant the range and the stronger the support or resistance level. A daily range is not as strong as a weekly range which is not as strong as a monthly range.
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What is the price range that provides THE strongest support or resistance level in any market?
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50% of the All Time High - multiply the ATH by 50%.
75% of the ATH is the next strongest level and then 25% of the ATH. |
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What is the second strongest support or resistance level in any market?
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50% of the All Time Range.
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What 2 ranges should you calculate on every stock you analyse, marking them on your chart?
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50% of the All Time High and 50% of the All Time Range.
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Briefly explain how we use price extensions to calculate future support and resistance levels?
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Price extensions are used to calculate price movements in the same direction as the original price range to determine future support and resistance levels. Price extensions occur when we take the previous price range and then project that range from a third point in the same direction as the original price range.
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How does Gann's 50% rule work in an uptrend?
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Gann states that if a stock falls less than half the distance that it previously rose, then it is strong and it is highly likely that it will travel back up at least 100% of the previous range from the point at which the stock stops falling (Point C). In essence, the stock will repeat its last price cycle.
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How does Gann's 50% rule work in a down trend?
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Gann states that if a stock rises less than half of the previous distance it fell, it is weak and it is highly likely that the stock will fall at least 100% of the previous range from the point at which the up move ceased (Point C). Therefore, the stock will repeat its previous cycle.
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What happens if the stock travels through 50% of the previous range?
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In an uptrend, if a stock falls below 50% of the previous rise, the next move up is likely tone weaker and it may not travel back up to 100% of the previous range.
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What happens if the stock travels through 50% of the previous range in a downtrend?
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If a stock rises past the 50% level of the previous range, it is unlikely to have a strong fall when it turns, although the stock could still make a new low.
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How do we apply Gann's 50% rule to swing charts in a rising market?
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Identify the previous range (your AB points).
In a rising market, you select a swing low followed by the next swing high and then project the retracement down to determine whether it retraced less than 50% of the previous range. |
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How do we apply Gann's 50% rule to swing charts in a falling market?
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In a falling market you a select a swing high followed by the next swing low and project the retracement up to determine whether it moved less than 50% of the previous range.
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In an uptrend, how do you select Point A, B & C?
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Point A will be the lowest low and Point B will be the highest high prior to the next higher low.
The next higher low will be Point C. It will also be Point A for the next extension. |
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In a downtrend, how do you select Point A, B & C?
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Point A will be the highest high.
Point B will be the lowest low prior to the next lower high. Point C will be the next lower high. It will also be Point A for the next extension. |
